Incidents:

The company announced its semi-annual report for 2023. 23H1 achieved revenue of 701 million yuan, +13.79% year-on-year; net profit attributable to mother - 118 million yuan, -880.11% year-on-year; net profit after deducting non-return net profit of 52 million yuan.

Stabilize stock and increase, and verify the effectiveness of strategy implementation

23H1 achieved revenue of 701 million yuan, +13.79% year on year, of which 23Q2 achieved revenue of 286 million yuan, +17.46% year on year. The company “stabilizes stock and increases volume”, streamlines SKUs in high-end jujube stock and focuses on high-value products to achieve steady development. Incremental “Hongxiao” gradually gained momentum. After May, it surpassed 10 million monthly sales, and the second growth curve was clear. The company focuses on the “1+N” brand strategy, focuses on red dates while expanding healthy and fresh foods. By category, the 23H1 jujube category achieved revenue of 532 million yuan, or +38.93% year-on-year, mainly due to the steady growth of the high-end jujube business and the continued expansion of Red Xiaopai. Revenue from nuts was +52.00% to $34 million, and revenue from other categories was -45.04% to $106 million, which is expected to stem from the streamlining of the jujube coffee business. By channel, 23H1 e-commerce and specialty stores accounted for 37.96% and 29.41% respectively. In the past, the company used specialty stores to establish high-end jujube mentality and improve overall service quality. At the end of June, the company had 262 and 166 specialty stores in Henan Province and outside the province, respectively. Currently, the company is using HongXiaopai products as an opportunity to open channels such as convenience stores and snack stores, covering more than 10,000 terminal outlets, vigorously expanding the breadth of channels, and at the same time increasing the expansion of live streaming online.

The off-season scale effect suppresses profit performance. The overall gross margin was relatively stable. 23H1 achieved net profit of -118 million yuan, or -880.11% year-on-year. Of these, 23Q2 achieved net profit of -131 million yuan. The main cause of losses in Q2 was the low season for jujube consumption, and the scale effect was limited. 23H1's gross margin is 23.78%, year-on-year -0.18pct, of which the jujube category's gross margin is 26.07%, year-on-year -0.45pct. The expected decline in gross margin is mainly due to the expansion of products such as Hongxiao, positioning snack attributes, and operating in a high turnover model. The overall gross profit level is relatively low, but the decline in jujube costs is somewhat offset. The 23H1 sales expense ratio was 22.08%, +1.11pct over the previous year. The increase in sales expenses was mainly due to the increase in live streaming promotion expenses.

The Q2 off-season opens up channel cooperation, and the H2 peak season is expected to unleash upward potential. Starting with a “stable stock and expansion” strategy, focusing on high-value products to drive steady growth in the jujube business, while focusing on high-value products to drive steady growth in the jujube business, it also focuses on building a second growth curve for the “Hongxiao Party”, and establishes a “Growth Committee” to focus on cultivating large products and enriching channel coverage. Q2 is the off-season for jujube, and channel cooperation such as convenience stores and snack stores will gradually expand. It is expected that H2 will enter the peak season, with an increase in the number of superimposed cooperation systems, a rich product matrix, and the expansion of snack stores themselves, etc.

Investment advice:

In line with the company's strategic expansion direction, we slightly adjusted our previous profit forecast and adjusted the revenue for 2023 from 1,703 billion yuan to 1,626 billion yuan. We expect the company's revenue to reach 1,626 million, 19.44 billion yuan, and 2,289 million yuan respectively in 2023-2025, and net profit of 0.18, 0.47 million yuan, and 94 million yuan respectively. If equity incentives are not taken into account, the company's net profit will be 0.32, 0.65 million yuan, and 99 billion yuan respectively. They are optimistic about the marginal improvements brought about by the company's expansion into new categories and channels, and given a buy-A investment rating. Due to the high volatility of the company's short-term profit, the target price for 6 months is 10.10 yuan, which is equivalent to 2.8X PS in 2023.

Risk warning: New product development falls short of expectations, channel expansion falls short of expectations, and costs fluctuate greatly.